贝恩+驾驭综合支付新浪潮-Riding the New Wave of Integrated Payments

RidingtheNewWaveof

IntegratedPayments

The“bettertogether”logicofsoftwarepluspayments

appealstomanymerchantcustomers,offersnew

revenuestreamsforplatformproviders,andcan

rewardcarefulprivateequityinvestors.

ByJustinMiller,TeviaSegovia,AndreaCampagnoli,and

MariagiovannaDiFeo

Stripe|Bain&Company,Inc.

1

RidingtheNewWaveofIntegratedPayments

AtaGlance

Independentsoftwarevendorshavethepotentialtoaddress$35trillioninpayments,or15%oftheworldwidetotal,byintegratingpaymentsintotheirplatforms.

Determiningtheoptimalmodelforaplatformentailsanalysisofthebenefits,totalcostofownership,andrisks.

Inourview,apromisingplatformisanalternativepaymentfacilitatormodel,wheretheplatformperformsselectpayfacfunctions.

Investorsassessingsoftwarefirmsmovingintothisspaceshouldavoidoverweightingdazzlingrevenuepotentialandunderweightingtiming,cost,andriskconsiderations.

Duediligenceshouldalsolooktothebroaderworldofembeddedfinanceforfuturegrowth,aspaymentscanbebundledwithbanking-as-a-serviceofferings.

Integratedpayments—buildingpaymentsdirectlyintothesoftwaresystemsthatbusinessesusetoconductcommerce—ispoisedtounlocksignificantgrowthformanytypesofsoftwarefirms.Bymakingthesoftwaremoredistinctiveandvaluabletomerchantcustomers,integratedpaymentsaddsarevenuestreamthatcomplementssoftware-as-a-service(SaaS)offerings.Bain&Companyestimatesthatupto$35trillioninpaymentscouldbeaddressedannuallybyindependentsoftwarevendors(ISVs)worldwide,orroughly15%ofallpayments.

Participatinginpaymenttransactionsasasoftwareplatformhingesona“bettertogether”logicforcustomers—theideathatbundlingsoftwarewithpaymentsbeatsthestandalonealternatives.Atitsbest,paymentprocessingbecomesjustonepartofanintegratedsoftwarepackage,notthemainattraction.Butwhenarangeoftoolsandservicesworkinunison,theyimprovethecustomerexperienceandreducetheneedtostitchtogetherunrelatedproductsfromdifferentvendors.

ISVswithintegratedpaymentshavebeentakingshareinmerchantacquiring,ortheacceptanceand settlementofcreditcardpaymentsonbehalfofbusinesses.ISVsaccountedforone-sixthof2020USmerchantacquiringpaymentvolume,andthatfigureisgrowingatamid-teenspercentagerate.The“bettertogether”valueproposition,itseems,isdelightingmerchants.

Butdelightingmerchantstakeseffortandfocus.EvenwiththehelpofleadingenablerssuchasStripe,integratingpaymentsrequiresaninvestmentinpeopleandtechnology,andsuccessisnotassured.ISVsarecompetingagainsttraditionalfinancialinstitutionssuchasJPMorganChaseandtheothersoftwareplatformsusedbytheircustomers.

Stripe|Bain&Company,Inc.

2

RidingtheNewWaveofIntegratedPayments

Thetaskbecomescreatingthe“bettertogether”valuepropositionandeffectivelycross-sellingthepaymentsmodule.Toachievefullpotential,someplatformswillalsohavetomotivatemerchantstoconverttoelectronicormoreprofitablepaymentmethods.Meanwhile,choosinghowtobeginthepaymentsjourneycanbedauntingforplatforms.Thegoodnews:Thesechallengesarebynomeansinsurmountable,andgettingitrightcanbequitelucrative.

3

Demystifyingintegratedpayments

Paymentprocessingconnectsbusinessestopayment“rails,”theinfrastructurethatpowerstransactionsusingcreditanddebitcardsandotherpaymentmethods.Platformsincreasinglybundlepaymentprocessingwiththeirsoftwaretodifferentiatetheirproductandtapnewrevenuestreams.ThistrendhasbeenmostpronouncedintheUS,wherecardsaccountforabouthalfofconsumerexpendituresandprofitpoolsaboundforallthoseinvolvedinoperatingpaymentrails—merchantacquirers,cardnetworkssuchasVisaandMastercard,andcardissuers.

Softwarecompaniescanfacilitatepaymentprocessingthroughseveralmodels(seeFigures1and2).Platformsaregraduatingtowardmodelsthatprovidemorecontroloverthecustomerexperience,plusagreatershareoftheprofitpool,inreturnforadditionalresponsibilitiesandrisks.Let’srevieweachinturn.

Thesimplestmodelisareferralpartner.Theplatformcanmonetizethecustomerrelationshipthroughreferralfeesorcommissions,whileleavingtheprovisionofserviceslargelytothepaymentserviceprovider(PSP),oftenabankorpaymentsspecialist.

Alternatively,aplatformcanbecomeanindependentsalesorganization,orISO,authorizedtoactonbehalfofaPSPtosellcardpaymentprocessingservicestomerchants.TheISOcannotbeinthesettlementfundsflow,asthemoneymustmovedirectlyfromthePSPtothemerchant.

TherelationshipbetweenanISOandaPSPcanrangefromaretailmodel,wheretheplatformsellsthePSP’sservicesasanagentinreturnforacommission,toawholesalemodel,wheretheISObuysprocessingatwholesaleratesandresellsatamarkup.Thewholesalemodelgenerallyallowsmorecontroloverpricingandthecustomerexperience,butitentailstakingonunderwritingandmerchantrisk.

Athirdmodeltoembedpaymentsinvolvesbecomingapaymentfacilitator,knownasapayfac.Thepayfacstandsinplaceofthemerchantforthepurposeofcreditanddebitcardrules,maintainingsubmerchantaccountsforitsmerchantcustomersandtouchingthemoneyinthesettlementfundsflow.

Stripe|Bain&Company,Inc.

4

Description

Platformvalueproposition

RidingtheNewWaveofIntegratedPayments

Figure1:Softwareplatformscanfacilitatepaymentsinanumberofways

Referralwithout

customization

Referralwith

Purereferralintegration

Independentsales

organization(ISO)

Paymentfacilitator

(payfac)

RetailWholesaleAlternativeRentOwn

•Paymentservicehandlesallpay

provider(PSP)mentactivities

•PlatformcontrolsfunctionsofPSPbecomingameorpayfac

specific

withoutrchantacquirer

•Platformperformsselectpayfacfunctions

•Platform“rents”infrastructureto

orbuilds

beapayfac

•Monetizeuserswithoutaddedrisk/complexity

•Monetizeusersandimproveuserexperiencewithminimal

risk/complexity

•SellatPSP’spricingforacommission,withminimalrisk

•Earnspreadbetweenwholesaleandretailrates

•Assumeunderwritingandmerchantrisk

•Deliveruserexperienceandrevenuequickly

•Canselectresponsi-bilities/riskstoassume

•Reduceupfrontcost

•Earnsignifi-cantrevenueforacceptingrisksandresponsibilities

•Maximizerevenueathighupfrontcost

•Assumeallrisksandresponsibilities

Source:Bain&Company

Figure2:Platformscangeneratemorerevenuebyassuminggreaterriskandresponsibilities

Referralwithout

customization

Independentsales

organization(ISO)

Paymentfacilitator

(payfac)

Referralwith

PurereferralintegrationRetailWholesaleAlternativeRentOwn

Customer

experience

None

Low

None

Medium

Medium/high

High

High

Revenuein

basispoints

0–30

0–30

10–40

40–60

20–60

50–80

60–100

Operating

expense

None

Limited

Low

Moderate

Low

Moderate

High

Risk

None

Limited

Limited

Moderate

Limited

Moderate

High

Time

tomarket

Minimal

Lessthan

3months

Lessthan

3months

6–12months

0–6months

6–18+months

1–2+years

LeastfavorableMostfavorable

Note:Revenueassumessmallormidsizemerchantswithanaveragepaymentsvalueof$250,000annually,or100basispointsnetofinterchange

Source:Bain&Company

5

Stripe|Bain&Company,Inc.

RidingtheNewWaveofIntegratedPayments

AnecosystemoffintechsincludingStripe,Finix,Payrix,andWePayhasemergedtosupportISVs,eitherthroughtherentalofinfrastructureorthroughalternativemodelsthatofferthebenefitsofbeingapayfacwithoutregisteringwiththecardnetworks.Thisgivesaplatformmoreflexibilityintermsofwhichresponsibilitiesandrisksitwantstoassume.

Themodelscanlookandfeelsimilar,andtheyoftenachievesimilareconomics.However,eachhasdifferentunderlyingtechnologyandregulatoryrequirements.

Howthemerchantexperiencechanges

How,specifically,doesintegratingpaymentsbenefitmerchants?Wewouldhighlightthreecharacteristics:abetterexperience,lowercosts,andgreateraccesstoservices.

Abettermerchantexperience.Integratingpaymentscancreateasuperiorexperienceinthreeways.First,itcombinessoftwareandpaymentsonboarding,underwriting,andknow-your-customerprocesses.Second,thebundlecansimplifyvendormanagement.Notonlydoesthemerchanthavejustonevendortomanage,butthevendoralsoismotivatedtoprovidebetter,moreresponsiveservice.Third,thecombinationallowsplatformstoprovideaunifiedsuiteoftoolsforbusiness,resultinginsavedtime,fewererrors,andgreatervisibilityoftheentirecustomerlifecycle.DaxDasilva,founderofLightspeed,notes,“Customerswanttoworkwithonepartnerthatcanbringtogetherallthesolutionstheyneedtorunalltheelementsoftheirbusiness.”

DaxDasilva,founderofLightspeed,notes,“Customerswanttoworkwithonepartnerthatcanbringtogetherallthesolutionstheyneedtorunalltheelementsoftheirbusiness.”

Lowercosts.Asplatformscompetetoprovideacompellingpackage,lowercostsoftencomeintheformofusingpaymentsrevenuetosubsidizesalesofsoftwareorhardware,asToastdoeswithitshardware.Alternatively,platformsmayofferattractivepaymentprocessingratestolurecustomersorencourageadoptionoffeature-richpackages.Forexample,Shopifymerchantsreceivetieredpaymentspricingbasedontheirplan.TheBasicplanat$29permonthincludespaymentsat2.9%plus30centspertransaction,theShopifyplanat$79permonthcharges2.6%plus30cents,andtheAdvancedplanat$299permonthdeliverspricingatjust2.4%plus30cents.

Inaddition,integratedpaymentsoftenenablesmerchantstoavoidthecostofmanualreconciliationandexceptionhandlingfromweaklyintegratedsolutions.

Stripe|Bain&Company,Inc.

6

RidingtheNewWaveofIntegratedPayments

Greateraccesstoservices.Thesoftware-plus-paymentsbundlecanimproveaccesstomerchantservices,becauseplatformsoftenhaveabetterviewofthemerchant’sbusinessthananoutsidefinancialinstitution,whichhelpstheplatformassessriskmoreaccurately.

Thisisapowerfulpropositioninhigh-riskmerchantacquiringcategoriessuchasgyms,whichhavetraditionallybeenunderservedbyprocessors.Afitnessclubbusinessmanagementsoftwarethatcontrolsfacilityaccessbyverifyingmembershipstatusofgymgoerswilltrackcriticalmetricslikemembervisits,churn,totalmembers,andfacilityoperatingcosts.Accesstosuchdataallowsforvertical-specificunderwritingthatismuchmorenuancedthanthatofagenericpaymentprocessor.

Thislogicgetsevenstrongerinsituationswherethesoftwaretransformstheriskofacquiringthemerchant(movingtoarecurringbillingmodel),orwherefundscanbeheldbacktomanagecreditrisk(enabledbyapayfacmodel).DemocratizationofpaymentsforsmalleroperatorshascontributedtothesuccessofgymbusinessmanagementsystemMindbody.

Platformshavecreatedcompelling“bettertogether”valuepropositionsacrossmanysoftwarecategoriesandmerchantindustries.Theseincluderetailandrestaurantpoint-of-sale(forinstance,ToastandLightspeed),e-commerce(Shopify,Wix,andBigCommerce),accountingandaccountsreceivable/payable(Intuit,Sage,andXero),verticalsoftwarefornonprofits(CommunityBrandsandBlackbaud),fitnessclubsandsports(MindbodyandABCFitnessSolutions),andrealestate(Yardi).

Whilethesebenefitsapplyacrosstheboard,integratedpaymentshasseenthegreatestadoptioninareasthatdisplaythefollowingcharacteristics.

Amajorityofsmallandmidsizecustomers.Smallerbusinessestendtofavorthe“bettertogether”proposition.Largeenterprises,bycontrast,oftentakea“bestinbreed”approachandcangetfavorablepricingfrombundlingtheirtreasury,corporatelending,andinvestmentbankingproductswithtraditionalfinancialinstitutions.

Proximitytothetransaction.Platformsclosesttofacilitationoftheeconomictransaction,suchasthosethatinterfacewiththecustomer,havebeenmoresuccessful.

Highcardacceptancelevels.IntheUS,platformsservingindustrieswithhighcardpaymentvolumestypicallyhavegreatersuccess,giventheopportunitytocross-subsidizemerchants.Insurance,utilities,realestate,andotherindustrieswithagreatershareoflow-marginpayments(suchasautomatedclearinghouse)orphysicalpayments(checks)seelessactivity.Internationally,thismatterslessgiveninterchangefeecapsandtheimportanceofappropriatelocalpaymentmethodsforthecustomerexperience.Still,well-designedintegratedpropositionscanincreasecardacceptancebyaddingthepaymentaccelerationandcreditprotectionbenefitsofcards.

Complexpayments.Platformsthatcatertoindustrieswithmorecomplexpaymentneeds(suchasrecurringpayments,splittickets,orinstantpayouts)canstrengthenthelogicbyimprovingfunctionalityandprocesses.Forexample,card-on-filepaymentsforrecurringsubscriptions,

7

Stripe|Bain&Company,Inc.

RidingtheNewWaveofIntegratedPayments

memberships,andsemi-recurringbillsforclassesorspecialequipmentrentalareadministrativelycomplex,whichfavorsadoptionofintegrated,automatedpaymentstoeaseoperationsandsafelysavepaymentsdata.

Withthesecharacteristicsinmind,retaile-commerceandpoint-of-saleplatformstargetedatsmallbusinesseshavemovedfurthestalongtheintegratedpaymentsadoptioncurve.Meanwhile,integratedaccountingandcustomerrelationshipmanagementplatformshavetakenholdwithsomeoftheircustomers,buttheyoftenseelowerpenetrationrateswhentheyarenottheclosestsystemtothetransactionitself.Insurancesoftwareprovidersaremorelikelytohavepartnershipsandintegrationswithpaymentgatewaysbecauseoftheirenterprisecustomerbaseandpaymentmethodmix,despitebeingclosetosometimes-complexpayments.

Diveintothevastprofitpool

The“bettertogether”logiccanunlockanenormousprofitpool,especiallyforISVsservingsmallerbusinesses,complementingSaaSrevenueandraisingcustomerlifetimevalue.

The“bettertogether”logiccanunlockanenormousprofitpool,especiallyforISVsservingsmallerbusinesses,complementingSaaSrevenueandraisingcustomerlifetimevalue.

Infact,paymentsrevenuecanoutstriptheplatform’scoreSaaSrevenue(seeFigure3).Forexample,in2021Shopifygeneratedover$3billion,ormorethantwo-thirdsofitstotalrevenue,fromitsmerchantsolutions,principallythroughcreditcardprocessingandcurrencyconversionfees.Thisrevenuestreamhasgrownfromalmost$1billionin2019andprovidesgrossmarginsofover40%.Similarly,about80%ofToast’srevenueslinktopaymentsandotherfinancialservices,nottosoftwareorequipmentleases.(NotethatShopify,Toast,and,forsomeofitsrevenue,Lightspeedreportonagrossbasis,meaningtheyincludepass-throughinterchangefeesasrevenueandadirectcost.)

Platformsearnthisrevenuefromthecreditanddebitcardfeespaidbymerchants,sometimesreferred toasthemerchantdiscountrate.Amajorityofpaymentprocessingprofitscomefromservingsmallermerchants,duetohigherpricelevels.Headlinepricingforsmallbusinessescommonlyruns2.9%plus30centsintheUS,thoughitislowerinjurisdictionswithregulatorycaps,suchastheEuropeanUnionandAustralia.CardissuerslikeJPMorganChaseandcardnetworkstakeamajorityofthis fee,leavingabout100basispointsforthemerchantacquirer.Enterprisestypicallycontractonan“interchangeplus”model,agreeingtoapass-throughofissuerandnetworkfees(the“interchange”),plusanegotiatedfeetothemerchantacquirer(the“plus”).Thisfeeiscommonlylessthan15basispointsforenterpriseswithatleast$1billioninrevenue(seeFigure4).

Stripe|Bain&Company,Inc.

8

Financialtechnology

solutionsrevenue

Transaction-basedrevenue

100

75

50

25

0

RidingtheNewWaveofIntegratedPayments

Figure3:Leadingplatformsproducesubstantialrevenuefromintegratedpayments

2021revenue

100%

80

60

40

20

0

Paymentsgrossmargin

$1.7B

$0.2B

$4.6B

Revenuefromotherbusinesslines

Merchantsolutionsrevenue

Toast

20%

Lightspeed

45%

Shopify

43%

Notes:MerchantsolutionsincludesShopifyPayments,themaindriverofgrowthinmerchantsolutions;paymentprocessingfeesarerecognizedonagrossbasis;financialtechnologysolutionsincludesintegratedpaymentprocessingforToast,aswellasotherfinancialservicessuchasworkingcapitalloans;paymentprocessingfeesarerecognizedonagrossbasis;transaction-basedrevenueincludesrevenuefromLightspeedPaymentsandrevenue-sharingagreementswithpaymentpartners;revenueincludesmixofgrossandnetrecognitiondependingonnatureofrevenue;annualreportsfromprioryearscombinesoftwareandpaymentsrevenuesforLightspeedPayments;LightspeedPaymentsrevenueisbasedonyearendingMarch2021;paymentsgrossmarginreflectsgrossmarginonsegmentcontainingpaymentsrevenueforeachcompany

Sources:Company10-Ks,8-Ks,andS-1s;analystreports;Bainanalysis

Figure4:Platformsservingsmallerbusinessescandrivefavorableeconomics

Cardpaymentprocessingfeenetofinterchange,inbasispointsoftransactionvalueprocessed

125

Typicalpricingrange

$1million$10million$100million$1billion$10billion$100billion

Merchantcardedpaymentvalue($logscale)

Sources:Marketparticipantinterviews;paymentprocessorwebsites;CreditSuisseandStripedata;Bainanalysis

Stripe|Bain&Company,Inc.

9

RidingtheNewWaveofIntegratedPayments

Typically,othermethodssuchasautomatedclearinghouse(ACH)paymentshavelowerprocessingrevenuesthancardprocessing.ISVscanoftencreateavalue-addedserviceformanagingthesepayments,whichmaintainsmarginfortheISV,enhancesthecustomerexperience,andreducesoverallpaymentcostsforcustomers.

Platformsearnashareofthepaymentprocessingfee,dependingonthemodelchosen,responsibilitiesundertaken,andriskassumed.Acompanydippingitstoeintointegratedpaymentscouldexpecttoearnupto30%ofthe“plus,”whileamatureintegratedpaymentscompanythatinternalizesthepaymentscapabilitycouldearnthefull100%.

Forasoftwarecompanythattouches$1billionofcardedpaymentscollectedbysmallbusinesses,adoptingapayfac-alternativemodelcouldgenerate$5millionofnetrevenue,assuming50basispointsoffees,100%penetration,andrevenuerecognizedonanetbasis.Thisdoesnotaccountforpotentialbenefitsfromwinningandretainingmorecustomersthroughadifferentiatedproductoffering,whichalsoincreasescustomerlifetimevalue.

10

Selectingtherightintegrated

paymentsmodel

Integratedpaymentsonlymakessensewhenithelpsaplatformdevelopacompetitiveadvantage.Startwithaquicktesttodecidewhethertopursueit(seeFigure5).

Ifasoftwareplatformisconfidentitcancreateacompelling“bettertogether”logicforitsmerchantcustomers,itthenfacesthequestionofexactlyhowtofacilitatepayments.

Determiningtheoptimalmodelforagivenplatformrequiresexaminingthebenefits,totalcostofownership,andrisksacrossmodelsinthecontextoftheplatform’sstrategy.Let’sstartwithtwoversionsofapaymentfacilitatormodel(seeFigure1).Thepayfacstandsinplaceofthemerchantforthepurposeofcreditanddebitcardrules,maintainingsubmerchantaccountsforitsmerchantcustomersandtouchingthemoneyinthesettlementfundsflow.

Atypicalpromisingplatformmaybebestservedbyapayfac-alternativemodel.Thisaffordsmorecontroloverthecustomerexperience,pricing,andspeed.Deploymenttakesweeksormonths,ratherthanquartersoryears.Launchinginstagesandgraduallybuildingtheintegratedpaymentsofferingmaybethemosteffectivewaytoquicklyenterthemarket,onboardmerchants,andstartprocessing.

Jumpingstraighttoarentalmodel—wheretheplatformrentsinfrastructure—mightmakesenseforplatformswithhighpaymentvolumethatarepreparedtomanagethecomplexityandmakealargerupfrontinvestment.Bycontrast,referralandISOmodelsgenerallydonotunleashthefullopportunitytoimprovethecustomerexperience.Andbuildingcomprehensive“own”payfaccapabilitiestendstobeasteptoofarforallbutthelargestISVs.

Thereareexceptionswherefullpayfacoperationsmakesenseatasmallerscale,notablywhencapturingaspecialinterchangethatwouldnotbeavailabletoclientsseparately(suchasmicroticketinterchangeratesinvendingmachines)orwithalow-riskandstickycustomerbase.Forexample,payfacmodels

Stripe|Bain&Company,Inc.

11

Integratedpaymentsisunlikelytosucceed

Yes

Exploreintegratedpayments

Explore

integrated

payments

RidingtheNewWaveofIntegratedPayments

Figure5:Aquicktesttodecidewhethertopursueintegratedpayments

Cantheplatformcreatea“bettertogether”valuepropositionforcustomers?

Yes

No

Doesthecustomerbasehaveahighshare

ofsmallormidsizemerchantsthataccept

creditordebitcardtransactions?

No

Willintegratedpayments

improvecustomerexperience

orlifetimevalue?

YesNo

Limited

upsidefor

platform

Source:Bain&Company

arecommonamongsoftwarevendorsprovidingUSmunicipalgovernmentpaymentportals,becausecardholderfraudislow,chargebackriskisverylow,andclientonboardingandchurnisslow—allminimizingtherequirementsandrisksofunderwriting.

Theexpandingecosystemofenablingfirms

Noplatformhastotackleintegratedpaymentsonitsown,asitcancallonsupportfromanecosystemofcompaniesthathasbeengrowingforadecade.StripelaunchedConnectin2012,whenfewsoftwarecompanieswereintegratingpaymentsintotheirproductofferingsandthosethatdidhadfewoptions.PlatformssuchasShopify,Squarespace,andXerowereearlyadoptersofStripe’soffering.

Sincethen,WePay,Payrix,Finix,andothershaveemergedtohelpplatformsintegratepayments.Theyoffersolutionsforintegratedreferralsorpayfac-alternativemodels,ormiddlewareforplatformslookingtorentpayfacinfrastructure.

Asplatformsotherthanthelargeste-commerceandpoint-of-saleISVsbegintofacilitatepayments,theenablingfirmshaveevolvedtheirproductsuitetosuitabroaderrangeofplatforms.Forexample,FinixintroducedFinixFlexin2020toprovideastepping-stonetowardbecomingaregisteredpayfacwiththecardnetworks.Meanwhile,Stripe’sConnectend-to-endpaymentsplatformoffersflexiblebuildingblocksandmodularcapabilitiestogrowwithabusinessovertime.

12

RidingtheNewWaveofIntegratedPayments

Matchingthemodeltothesituation

Creatingexceptionalcustomerexperiences,settingprices,andgettingsignificantsharesoftherevenuearethedrawingcardsformanyplatforms,butinreturntheymusttakeonmoreresponsibilitiesandrisks.Movingfromapurereferralmodeltowardapayfacmodel,aplatformwillincreaseitsabilitytoseecustomerdata,ownthecustomerexperience,customizetheproductandpricing,andreapmoreoftherevenue(seeFigure2).

However,thiscomesatacost:Theplatformneedstointernalizeriskandcompliancecapabilities,investinpeopleandtechnologyinfrastructure,andintegratepaymentssystemsintothecoresoftwareplatform.

Agreatereffort/higherreturnmodellikelymakessensewhenaplatformaimstodothefollowing:

•Controlthecustomerexperience.PlatformsthatwanttocontroltheonboardingandongoingcustomerexperiencewillgenerallyneedtoadoptawholesaleISO,payfac,orpayfac-alternativemodel.WhilereferralwithintegrationorretailISOmodelsmightmakeinroadsonthecustomerexperience,theylikelywon’tbeabletodeliveronthefull-potential“bettertogether”logic,asonboardingandrelationshipmanagementgenerallystaywiththepaymentserviceprovider.

•Setpaymentspricing.Referralmodelshavelimitedabilitytoinfluencepricing,soplatformslookingtosetpaymentpricingwillneedtomovetoISOandpayfacmodels.Platformswillgenerallyseegreaterpricingflexibilitywhentheybeartheunderwritingrisk.

•Underwritemerchants.Wherethe“bettertogether”logicdependsonasuperiorabilitytounderwritemerchants,platformsshouldfocusonwholesaleISO,payfac-alternative,orpayfacmodels.

•Touchthemoney.Apayfac-alternativeorpayfacmodelworksiftheplatformwantstoinsertitselfintothemoneyflowstomanagerisk(suchasholdingbacksettlementtomanagechargebackrisks),splitpaymentsamongmultipleparties,orextractfees.Thiscanbeimportantwhenaplatformwantstoofferadjacentfinancialservices,aswhenmerchantcashadvanceswithrepaymentsarecollectedautomaticallyasapercentageofsales.

•Takeadvantageofcardnetworkrules.Incertaincircumstances,itmaybebeneficialtoownthemerchantidentificationnumbertotakeadvantageofdiscountedinterchangeratesorothernetworkrules.Thiswilltypicallyrequireapayfacorpayfac-alternativemodel.

Calculatingrevenueandthetotalcostofownership

Revenuederivesfromthevalueofpaymentspassingthrough(orsometimesadjacentto)theplatform.Astartingpointistherevenueearnedbytheplatform’smerchants,suchasgrossmerchandisevalueine-commerce.However,theshareofthosepaymentsthataplatformcanfacilitatevariessignificantly.Thisvariancedependsonthenatureoftheplatform(isitfacilitatingtheeconomictransaction?

13

Stripe|Bain&Company,Inc.

RidingtheNewWaveofIntegratedPayments

isthereaplatformbetterpositioned?),customercharacteristics(largeenterprisecustomersarelesslikelytoseekabundle),andexecuti